Milestone’s curious timing

REIT trumpets good news and ignores the bad

In journalism it’s referred to as burying the lead, the much frowned upon practice of putting the most important part of the article in the eighth paragraph — by which time the reader has moved on.

In the world of corporate takeovers, there is a similar phenomenon which we could perhaps call the Milestone move — the practice of putting the positive news out early in the day and ensuring everybody is aware — and putting out the negative news late at night.

The Milestone move occurred this week as the REIT reacted to reports from two proxy advisory firms, both of which reached different conclusions on the merits of the US$16.15 a unit takeover offer from Starwood Capital. Milestone told the world about the positive recommendation from Glass Lewis before the markets opened — and the negative recommendation from ISS hours after the markets had closed.

Those two actions left one portfolio manager, slightly bewildered. “So Glass Lewis recommended shareholders vote in favour of the offer — and Milestone puts out a press release at 9 a. m., noting such.” The manager, who is not supporting the transaction, noted the contrast. “ISS recommends shareholders oppose the deal — and Milestone has an update at 10 p. m., when nobody is watching the news wires.”

So is Milestone managing the news, or was it just the way things worked out? Or was the late- in- the- evening release the result of having to work longer hours to compare what Glass Lewis got right and what ISS overlooked?

A Milestone representative said: “We can only comment when we see what the report says. The timing of the report does not change the positive message that we have been receiving from unit holders.” The meeting is scheduled for March 3.

In its report, Glass Lewis said “we see a reasonable basis for the board’s conclusion that the acquisition is in the best interests of the REIT and its unit holders at this time.” The report added that the price represents “a compelling value at which Milestone unitholders can cash out their investment.”

Glass Lewis also referred to “potentially negative headwinds on the horizon,” a view that didn’t make much sense to the portfolio manager. “Starwood has the same risk (as Milestone) and they are no dummies,” he said.

ISS had a different take and gave three reasons why a vote against the transaction was warranted. It noted that “speed and uncertainty were prioritized over price; that the offer “looks low based on multiple analyses;” and that there were numerous flags over “governance.”

It also noted that because negotiations were conducted with one party, the result might be “a sub- par offer compared to an auction or a market check process,” and further noted that Milestone’s “profile and industry fundamentals do not point to immediate threats to a stand-alone option.”

What has upset some unit holders and analysts is the timing of the going private transaction coming six months after the REIT paid $ 106.5 million, in cash and stock, to buy the management contract. That buyout was meant to compensate for seven years of services and was based on a healthy ($300 million to $ 400 million) annual stream of acquisitions. Instead of seven years, the REIT received a mere six months of management.

When the Starwood deal was announced, Michael Markidis, the real estate analyst at Desjardins Capital Markets said: “We can’t help but wonder if entering into a friendly transaction was somewhat premature, especially since one could argue that several of the proposed benefits of the internalization had not fully percolated through to MST’s unit price.”